Jaguar Land Rover Automotive plc Annual Report 2016/17

INTANGIBLE ASSETS 
Acquired intangible assets
Intangible assets purchased, including those acquired in business combinations, are measured at acquisition cost, which is the 
fair value on the date of acquisition, where applicable, less accumulated amortisation and accumulated impairment, if any. 
Intangible assets with indefinite lives are reviewed annually to determine whether an indefinite life assessment continues to be 
supportable. If not, the change in the useful life assessment from indefinite to finite is made on a prospective basis.
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For intangible assets with finite lives, amortisation is charged on a straight-line basis over the estimated useful lives of the 
acquired intangible assets as per the estimated amortisation periods below:
Class of intangible asset
Estimated amortisation period 
(years)
Software
2 to 8
Patents and technological know-how
2 to 12
Customer-related – dealer network
20
Intellectual property rights and other intangibles
3 to indefinite 
The amortisation for intangible assets with finite useful lives is reviewed at least at each year end. Changes in expected useful 
lives are treated as changes in accounting estimates.
Capital work-in-progress includes capital advances. Customer-related intangibles acquired in a business combination consist of 
dealer networks. Intellectual property rights and other intangibles mainly consist of brand names, which are considered to have 
indefinite lives due to the longevity of the brands.
Internally generated intangible assets 
Research costs are charged to the consolidated income statement in the year in which they are incurred.
Product development costs incurred on new vehicle platforms, engines, transmission and new products are recognised as 
intangible assets – when feasibility has been established, the Group has committed technical, financial and other resources to 
complete the development and it is probable that the asset will generate future economic benefits.
The costs capitalised include the cost of materials, direct labour and directly attributable overhead expenditure incurred up to 
the date the asset is available for use. 
Interest cost incurred is capitalised up to the date the asset is ready for its intended use, based on borrowings incurred 
specifically for financing the asset or the weighted average rate of all other borrowings, if no specific borrowings have been 
incurred for the asset.
Product development cost is amortised over a period of between two and ten years. 
Capitalised development expenditure is measured at cost less accumulated amortisation and accumulated impairment loss,  
if any.
Amortisation is not recorded on product development in progress until development is complete. 
IMPAIRMENT 
Property, plant and equipment and intangible assets
At each balance sheet date, the Group assesses whether there is any indication that any property, plant and equipment and 
intangible assets may be impaired. If any such impairment indicator exists, the recoverable amount of an asset is estimated to 
determine the extent of impairment, if any. Where it is not possible to estimate the recoverable amount of an individual asset, 
the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually, or 
earlier if there is an indication that the asset may be impaired.
The estimated recoverable amount is the higher of value in use and fair value less costs of disposal. In assessing value in use, the 
estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market 
assessments of the time value of money and the risks specific to the asset (or cash-generating unit) for which the estimates of 
future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying 
amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised 
immediately in the consolidated income statement.
An annual impairment review for heritage assets is performed and any impairment in the carrying value is recognised 
immediately in the consolidated income statement.
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Equity accounted investments: joint ventures and associates
The requirements of IAS 39 
Financial Instruments: Recognition and Measurement are applied to determine whether it is 
necessary to recognise any impairment loss with respect to the Group’s investment in a joint venture or an associate. When 
necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 
Impairment of Assets as a single asset by comparing its recoverable amount (the higher of value in use and fair value less costs 
of disposal) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. 
Any reversal of that impairment loss is recognised in accordance with IAS 36 to the extent that the recoverable amount of the 
investment subsequently increases.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash on hand, demand deposits and highly liquid investments with an original maturity 
of up to three months that are readily convertible into known amounts of cash and that are subject to an insignificant risk of 
changes in value.
INVENTORIES
Inventories are valued at the lower of cost and net realisable value. Cost of raw materials and consumables are ascertained on a 
first-in, first-out basis. Costs, including fixed and variable production overheads, are allocated to work-in-progress and finished 
goods, determined on a full absorption cost basis. Net realisable value is the estimated selling price in the ordinary course of 
business less estimated cost of completion and selling expenses.
Inventories include vehicles sold subject to repurchase arrangements. These vehicles are carried at cost to the Group and are 
amortised in changes in stocks and work-in-progress to their residual values (i.e. estimated second-hand sale value) over the 
term of the arrangement.
PROVISIONS 
A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be 
estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions 
are held for product warranty, legal and product liabilities, residual risks and environmental risks as detailed in note 27 to the 
consolidated financial statements.
LONG-TERM INCENTIVE PLAN (LTIP)
The Group operates a share-based payment LTIP arrangement for certain employees. The scheme provides a cash payment to the 
employee based on a specific number of phantom shares at grant date and the share price of Tata Motors Limited at the vesting 
date, subject to profitability and employment conditions. These are accounted for as cash-settled arrangements, whereby a 
liability is recognised at fair value at the date of grant, using a Black-Scholes model. At each balance sheet date, until the liability is 
settled, the fair value of the liability is remeasured, with any changes in fair value recognised in the consolidated income statement.
LEASES
At the inception of a lease, the lease arrangement is classified as either a finance lease or an operating lease, based on the terms 
and substance of the lease arrangement.
Assets taken on finance lease
A finance lease is recognised as an asset and a liability at the commencement of the lease, at the lower of the fair value of the 
asset and the present value of the minimum lease payments. Initial direct costs, if any, are also capitalised and, subsequent to 
initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Minimum lease 
payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding 
liability. The finance expense is allocated to each year during the lease term so as to produce a constant periodic rate of interest 
on the remaining balance of the liability.
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Assets taken on operating lease
Leases other than finance leases are operating leases, and the leased assets are not recognised on the consolidated balance 
sheet. Payments made under operating leases are recognised in the consolidated income statement on a straight-line basis over 
the term of the lease in ‘Other expenses’.
EMPLOYEE BENEFITS
Pension schemes
The Group operates several defined benefit pension schemes; the UK defined benefit schemes were previously contracted 
out of the second state pension scheme until 5 April 2016. The assets of the plans are generally held in separate trustee-
administered funds. The plans provide for a monthly pension after retirement based on salary and service as set out in the rules 
of each scheme. 
Contributions to the plans by the Group take into consideration the results of actuarial valuations. The plans with a surplus 
position at the balance sheet date have been limited to the maximum economic benefit available from unconditional rights to 
refund from the scheme or reduction in future contributions. Where the subsidiary group is considered to have a contractual 
obligation to fund the pension plan above the accounting value of the liabilities, an onerous obligation is recognised.
The UK defined benefit schemes were closed to new joiners in April 2010.
For defined benefit schemes, the cost of providing benefits is determined using the projected unit credit method, with actuarial 
revaluations being carried out at the end of each reporting period. 
Defined benefit costs are split into three categories:
•  Current service cost, past service cost, and gains and losses on curtailments and settlements;
•  Net interest cost; and
•  Remeasurement.
Remeasurement comprising actuarial gains and losses, the effect of the asset ceiling and the return on scheme assets (excluding 
interest) is recognised immediately in the consolidated balance sheet with a charge or credit to the consolidated statement of 
comprehensive income in the period in which they occur. Remeasurement recorded in the statement of comprehensive income is 
not recycled. 
Past service cost, including curtailment gains and losses, is generally recognised in profit or loss in the period of scheme 
amendment. Net interest is calculated by applying the discount rate at the beginning of the period to the net defined benefit liability. 
The Group presents these defined benefit costs within ‘Employee costs’ in the consolidated income statement (see note 7). 
Separate defined contribution schemes are available to all other employees of Jaguar Land Rover. Costs in respect of these 
schemes are charged to the consolidated income statement as incurred.
Post-retirement Medicare scheme
Under this unfunded scheme, employees of some subsidiaries receive medical benefits subject to certain limits of amount, 
periods after retirement and types of benefits, depending on their grade and location at the time of retirement. Employees 
separated from the Group as part of an Early Separation Scheme, on medical grounds or due to permanent disablement, are also 
covered under the scheme. The applicable subsidiaries (and therefore, the Group) account for the liability for the post-retirement 
medical scheme based on an annual actuarial valuation.
Actuarial gains and losses
Actuarial gains and losses relating to retirement benefit plans are recognised in the consolidated statement of comprehensive 
income in the year in which they arise. Actuarial gains and losses relating to long-term employee benefits are recognised in the 
consolidated income statement in the year in which they arise.
Measurement date
The measurement date of all retirement plans is 31 March.
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FINANCIAL INSTRUMENTS
Classification, initial recognition and measurement
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument 
of another entity. Financial assets are classified into categories: financial assets at fair value through profit or loss (which can 
either be held for trading or designated as fair value options); held-to-maturity investments; loans and receivables; and available-
for-sale financial assets. Financial liabilities are classified into financial liabilities at fair value through profit or loss or classified 
as other financial liabilities. No financial instruments have been classified as held-to-maturity. Where the Group provides 
convertible loan notes to third parties, these are designated as fair value through profit or loss using the fair value option.
Financial instruments are recognised on the balance sheet when the Group becomes a party to the contractual provisions of  
the instrument. 
Initially, a financial instrument is recognised at its fair value. Transaction costs directly attributable to the acquisition or issue of 
financial instruments are recognised in determining the carrying amount, if it is not classified as at fair value through profit or 
loss. Subsequently, financial instruments are measured according to the category in which they are classified. 
Financial assets and financial liabilities at fair value through profit or loss – held for trading: Derivatives, including embedded 
derivatives separated from the host contract, are classified into this category. Financial assets and liabilities are measured at fair 
value with changes in fair value recognised in the consolidated income statement with the exception of those derivatives that 
are designated as cash flow hedging instruments and for which hedge accounting is applied.
Loans and receivables: Loans and receivables are non-derivative financial assets with fixed or determinable payments that are 
not quoted in an active market and that are not classified as financial assets at fair value through profit or loss or financial assets 
available-for-sale. Subsequently, these are measured at amortised cost using the effective interest method less any impairment 
losses, if any. These include cash and cash equivalents, trade receivables, finance receivables and other financial assets.
Available-for-sale financial assets: Available-for-sale financial assets are those non-derivative financial assets that are either 
designated as such upon initial recognition or are not classified in any of the other financial assets categories. Subsequently, 
these are measured at fair value and changes therein are recognised in other comprehensive income, net of applicable deferred 
income taxes, and accumulated in the investments revaluation reserve with the exception of impairment losses, interest 
calculated using the effective interest method and foreign exchange gains and losses on monetary assets, which are recognised 
directly in profit or loss. The Group does not hold any available-for-sale financial assets.
Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be 
reliably measured are measured at cost.
Embedded derivatives relating to prepayment options on senior notes are not considered as closely related and are separately 
accounted unless the exercise price of these options is approximately equal on each exercise date to either the amortised cost of 
the senior notes or the present value of the lost interest for the remaining term of the senior notes.
Equity instruments
An equity instrument is any contract that evidences residual interests in the assets of the Group after deducting all of its 
liabilities. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs. 
Other financial liabilities 
These are measured at amortised cost using the effective interest method.
Determination of fair value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market 
participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation 
technique. In estimating the fair value of an asset or liability, the Group takes into account the characteristics of the asset or liability 
if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. 
Subsequent to initial recognition, the Group determines the fair value of financial instruments that are quoted in active markets 
using the quoted bid prices (financial assets held) or quoted ask prices (financial liabilities held) and using valuation techniques for 
other instruments. Valuation techniques include discounted cash flow method and other valuation models.
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Derecognition of financial assets and financial liabilities
The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expires or it transfers 
the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither 
transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the 
Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains 
substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the 
financial asset and also recognises a collateralised borrowing for the proceeds received.
Financial liabilities are derecognised when they are extinguished, that is when the obligation is discharged, cancelled or has expired.
When a financial instrument is derecognised, the cumulative gain or loss in equity (if any) is transferred to the consolidated 
income statement.
Impairment of financial assets
The Group assesses at each balance sheet date whether there is objective evidence that a financial asset, other than those at 
fair value through profit or loss, or a group of financial assets is impaired. A financial asset is considered to be impaired if objective 
evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.
Loans and receivables: Objective evidence of impairment includes default in payments with respect to amounts receivable from 
customers, significant financial difficulty of the customer or bankruptcy. Impairment loss in respect of loans and receivables 
is calculated as the difference between their carrying amount and the present value of the estimated future cash flows 
discounted at the original effective interest rate. Such impairment loss is recognised in the consolidated income statement. If the 
amount of an impairment loss decreases in a subsequent year, and the decrease can be related objectively to an event occurring 
after the impairment was recognised, the previously recognised impairment loss is reversed. The reversal is recognised in the 
consolidated income statement.
Equity investments: A significant or prolonged decline in the fair value of the security below its cost is also evidence that the 
assets are impaired. If any such evidence exists, the cumulative loss (measured as the difference between the acquisition cost 
and the current fair value), less any impairment loss on that financial asset previously recognised in profit or loss is removed 
from equity and recognised in profit and loss. Impairment losses recognised in the consolidated income statement on equity 
instruments are not reversed through the consolidated income statement.
Hedge accounting
The Group uses foreign currency forward contracts, foreign currency options and borrowings denominated in foreign currency 
to hedge its risks associated with foreign currency fluctuations relating to highly probable forecast transactions. The Group 
designates these foreign currency forward contracts, foreign currency options and borrowing denominated in foreign currency in 
a cash flow hedging relationship by applying hedge accounting principles under IAS 39.
These are stated at fair value on the consolidated balance sheet at each reporting date. Changes in the fair value of these 
forward contracts, options and borrowings that are designated and effective as hedges of future cash flows are recognised 
in other comprehensive income (net of tax), and any ineffective portion is recognised immediately in the consolidated income 
statement. Amounts accumulated in other comprehensive income are reclassified to the consolidated income statement in the 
periods in which the forecasted transactions affect profit or loss.
For options, the time value is not a designated component of the hedge, and therefore all changes in fair value related to the time 
value of the instrument are recognised immediately in the consolidated income statement.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, exercised or no longer qualifies 
for hedge accounting. For forecast transactions, any cumulative gain or loss on the hedging instrument recognised in other 
comprehensive income is retained there until the forecast transaction affects profit or loss. 
If the forecast transaction is no longer expected to occur, the net cumulative gain or loss recognised in other comprehensive 
income is immediately transferred to the consolidated income statement.